The non-optional extra on your American car: the cost of private health care

This just in (from an interview on Radio 4's Today program, actually). Bob Lutz, the vice-chair of global product development of the giant American vehicle maker General Motors, was interviewed about how the company is going to restructure. (Graph source: PBS.org)

GM is going through tough times: it's made too many models of cars that people don't want (can you spell 8mpg Gas Guzzler?), and is being doubly squeezed in its ability to sell them by the credit crunch - which means banks don't want to underwrite loans to people who want to "buy" (more like take out a mortgage on) cars; and the rising price of oil, which has roughly doubled in the past year, means that people are looking to more fuel-efficient cars, after years in which (to quote Lutz) "they thought they had a God-given right to cheap gas".

But here's the interesting stat. The biggest single cost in the manufacture of every GM vehicle is the privatised health care of the workers who put it together, amounting to an average $1,200 (£600 at current exchange rates) per vehicle. That's more than the rubber, more than the steel, more than the electronics. (Which makes one wonder, albeit briefly, quite how much profit there must be on a $20,000 car. But anyway.)

It seems this point has been made before by GM - back in 2005. Interestingly, then the numbers were $1,500 per car. So at least it's going in the right direction.

"And our foreign rivals with their imports don't have this extra cost," said Lutz, a tad grumpily. "I think it's an area where American public health policy is not helping us."

Fascinating, first of all, that American companies are starting to notice how much of a cost private health care really is. And interesting too that the US's ballooning health care costs - the highest as a proportion of GDP in the developed world, while still not covering millions of low-paid people - might be having an effect on its competitiveness at home.

Of course, the cost of health care is built in to the price of a car in the UK or Japan (which uses "social insurance") too; but it's subsumed into the salaries of the workers, and so is less easy to disentangle. But as a proportion of the car's cost, it's not going to be as high as the US one.

Which gets me wondering about other subsumed costs in things we buy. For instance, if it costs a company $150m to provide a Gulfstream jet for an executive, and the company sells 150m of its widgets, does that mean that a dollar of each widget's cost is flying the exec around? And how do you evaluate whether that's good value or not?